NZ Dollar Outlook Kiwi may gain on Greek hopes, yield appeal

Nov. 26 (BusinessDesk)
– The New Zealand dollar may rise from a month-high this
week on hopes of progress on Greek financial aid,
America’s fiscal cliff and speculation the kiwi may once
again become a favourite for the carry trade.

The New
Zealand dollar recently traded at 82.37 US cents, having
rallied in US trading on Friday from the 81.63 cents level
it reached in Wellington at the end of last week. It is
expected to trade in a range of 80.50 US cents to 83.50
cents, based on a BusinessDesk survey of six strategists.
Five of the six see the kiwi rising on the week and one sees
it unchanged.

Euro-area finance ministers return to
Brussels tonight to try to forge agreement on the next
instalment of financial aid to Greece, after inconclusive
talks last week. Meantime in the US, officials from the
White House and Congress will resume negotiations this week
on an agreement to prevent automatic tax increases and
spending cuts worth about US$607 billion kicking in on Jan.
1. US President Barack Obama said this month he was
"confident" a new US budget deal would be reached.

“The
kiwi has a firming bias,” said Imre Speizer, senior
markets strategist at Westpac Banking Corp. “US fiscal
negotiations are tending towards some outcome and the Greek
thing will edge towards an outcome. Those two will keep
markets supported.”

Signals out of Europe have been
mixed. EU leaders failed to reach agreement at a special
summit on the 2014-2020 EU budget, worth about 1 trillion
euros, and European Council President Herman Van Rompuy said
they would try to reach a compromise early next year,
according to Reuters. Meanwhile, the Ifo institute's
business climate index for Germany unexpectedly rose,
climbing to 101.4 in November from 100 in October, the first
increase in eight months.

The kiwi traded recently at
63.51 euro cents, down from as high as 66.80 cents in early
August.

“We’re reliant on political decisions for the
direction of markets, and that’s never a good thing,”
said Derek Rankin, director of Rankin Treasury Advisory.

That includes Japan’s looming elections on Dec. 16,
where the opposition LDP is expected to take power and has
vowed to weaken the yen and “if necessary take interest
rates negative,” Rankin said.

The kiwi dollar last
traded at 68 yen, the highest since late March. A change to
a Japanese government more aggressively targeting the yen
“will encourage the carry trade again,” which will help
underpin the kiwi dollar, he said.

New Zealand 10-year
bonds are currently yielding about 3.53 percent while
Japanese bonds of comparable maturity yield just 0.745
percent.

Tim Kelleher, head of institutional FX sales at
ASB Institutional, said the kiwi’s direction this week is
dependent on offshore moves though one local positive is the
allotment of units in the Fonterra Shareholders' Fund, which
begin trading on Friday at noon.

Any offshore investors
would need to buy kiwi dollars to pay for their units though
talk is that the sale “has been scaled
dramatically.”

Investors will also be watching the
Reserve Bank’s survey of expectations, due tomorrow, for
any clues to the central bank’s thinking ahead of the Dec.
6 monetary policy statement. They’ll get another clue to
inflation expectations with the release of the NBNZ Business
Outlook on Thursday.

“Despite a lower near-term
inflation profile, the RBNZ’s outlook is still likely to
entail rising inflationary pressures over the medium-term
horizon, UBS economist Robin Clements said in his weekly
note on Friday. “In short, the RBNZ projections will still
make the case for policy to ‘gradually remove monetary
stimulus’ i.e. next move expected to be a hike, just not
anytime soon.”

Across the Tasman, capex for the third
quarter and spending intentions will be closely watched for
any signs that the life is draining out of the resources
sector.

“Normally it is not too important but people are
saying they might have to downgrade their capex
forecasts,” Westpac’s Speizer said. “If it takes a
dive you will see heavy Australian dollar selling and kiwi
selling on the back of it.”

The week rounds out with
China’s official PMI for October, which is expected to
follow the unofficial HSBC flash PMI in showing
manufacturing in that nation is expanding. UBS is
forecasting the PMI will rise to 51.2 from
50.2.

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